Case Study: The Home Depot

Preface

This Essentials of Strategic Management assignment has been made by three persons which have been working
together and individually to finish the assignment properly and in time.

Secondly, we would like to thank the company whose websites we were able to visit and use, to get additional
information that we could use for leading the assignment of Home Depot to a successful ending.

We can say, that it was a pleasure to work on this assignment and would, in the third place, like to thank each other.
The persons who worked on this assignment, for the effort and time that is put in the assignment, that brought us to
this finished version.

Content

1.Preface

2.Introduction

3.Problem definition

4.Summary

5.Conclusion

6. Chapter 1: External analysis of Home Depot Inc.

7. Chapter 2: Internal analysis of Home Depot Inc.

8. Chapter 3: Strategic forces.

9. Chapter 4: Core Competencies Home Depot Inc.

10. Chapter 5: Distinctive Competencies Home Depot Inc.

11. Chapter 6: Competencies transferred to different markets

12. Chapter 7: Large box (endless selection) versus smaller stores

13. Chapter 8: The home improvement industry.

14. Chapter 9: Corporate Stock

15. Chapter 10: Competitor strategy

16. Chapter 11: Corporate Strategy

17. Chapter 12: The corporate culture of Home Depot

18. Chapter 13: Strategic Managers

19. Literature list

20. Enclosure

Introduction.

During the lesson we had the opportunity to read quickly through some of the cases. The reason why we have
chosen the Home Depot case is first of all that the home improvement industry appealed to us. Maybe not the
industry itself, but the fact that we have never written a paper or did research for the home improvement industry.
By choosing the Home Depot case to write a paper about, seemed a good way to us to enlarge our knowledge about
the (US) home improvement industry. The knowledge gained might prove to be useful in the future.

The case about Home Depot gave a lot of information, from the history till the corporate culture. Although a lot of
information was in the case, we had to do a substantial amount of research on the internet. The research on the
internet was mainly to look for information about Home Depot self as well as for some theory. For most of the
theory used, we had several books, ranging from the strategic management book used in the course to a book about
organisational behaviour.

In this study we will answer several questions with subjects ranging from strengths, weaknesses, opportunities and
threats of Home Depot till the corporate culture and corporate strategies. The answers on these questions together
will answer the overall question, which can be read in the next chapter. The conclusion will deal with the answer of
the overall question. Recommendations from our point of view are included in the conclusion.

The chapters following the conclusion will contain the answers to the several questions.
Problem definition.

How is Home Depot performing and can they continue like that?

The question above is our overall question. Using the answers of several questions listed below, we will come to an
answer to the overall question. Not only an answer will be given, we will also share some recommendations for
Home Depot. These recommendations are, according to us, the path Home Depot should follow to stay market
leader in a fierce competitive industry. The following questions will be answered:

-What are the opportunities and threats facing Home Depot?

-What are the strengths and weaknesses of Home Depot?

-What are the strategic factors facing Home Depot?

-Does Home Depot have any core competencies? If yes, what are they?

-Does Home Depot have a distinctive competency? If yes, what is it?

-What core competencies do Home Depot posses that can be transferred to the professional contractor market? To
the planned smaller stores? To going international?

-What are the similarities and differences of the two chains (large box stores and the 25.000 square feet stores)? We
will give these similarities and differences in a chart.

-What conditions were necessary to stimulate the growth of the home improvement industry?

-Would you purchase Home Depot stock? Why (not)?

-What competitive strategy is Home Depot following?

-What corporate strategy is the company following? Why?

-What is the importance of corporate culture to Home Depot? Can it be transferred to the new smaller stores?
Internationally?

-How important are the current strategic managers to the success of Home Depot?

The first question will be answered with the EFAS (External Factor Analysis Summary), the second will be
answered with the IFAS (Internal Factor Analysis Summary) and the answer to the third question will contain a
summary of the first to, put into the SFAS (Strategic Factor Analysis Summary). The definitions will be explained in
the dedicated chapters. What we can say already is that the EFAS and IFAS were designed to deal with criticisms of
the famous SWOT analysis. Some of these criticisms are; that the SWOT generates lengthy lists, uses no weight to
reflect priorities and there is no logical link to strategy implementation.
Summary.

In the summary we will summarise briefly all the questions and the corresponding answers. For the first three
questions and the question about the two store chains, we would like to refer to the corresponding chapters (External
Analysis of Home Depot, Internal analysis of Home Depot, Strategic factors and Large box (endless selection)
versus smaller stores ((convenience)), because the charts are in our opinion a good summary of the questions.

-Does Home Depot have any core competencies? If yes, what are they?

The core competencies of Home Depot are that things where they are extremely good in. Core competencies are
often called core capabilities. Home Depot's its core competencies are their rapid expansion, which was possible
because of their very strong balance sheet situation. Then in terms of their customer service, they posses high skilled
and helpful personnel. They give professional clinics and demonstrations of methods and techniques of performing a
job safely and efficiently. Their personnel is in some stores 24 hours a day available. With their computerised
systems, like barcode scanning and minicomputers, the checkout lines are not that long. Further on, they've got their
own truck rental and tool rental service. Price is their next core competency. They know prices of the competition
through professional shoppers. This price competency, Home Depot is able to reach, because it can gain products
from over 5,700 vendors/suppliers. Their wide product range is the next core competency. Home Depot owns a
product range with which they can supply all the participants in the home improvement industry. They do that with a
product range with 40,000 to 50,000 products in different variations. Their Human Resource Policy which supplies
them with the next core competency and that is their strategy to get highly skilled personnel via using several kinds
of methods during the interviewing process and training period of the employees. Giving those employees a certain
kind of salary doesn't make the customers feel that they are very important or less important. Last but not least is
Home Depot's tremendous buying power, which they reach through their market leadership and their quantity of
stores.

-Does Home Depot has a distinctive competency? If yes, what is it?

Home Depot's distinctive competencies will be their rapid expansion over the past years, their pricing of the
products and their wide product range. These three factors all meet the three required facts to be a distinctive
competency.

These facts are:

-The customer perceived value that must be there in disproportionate contribution
-Being unique and superior over your competitors
-Something that can be used to develop new products/services or to enter new markets

-What core competency does Home Depot posses that can be transferred to the professional contractor market? To
the planned smaller stores? To going international?

The core competencies Home Depot can transfer to the professional contractor market are their:
-Customer service
-Product range
-Low prices
-Human Resource Policy
-Buying Power

The core competencies Home Depot can transfer to the planned smaller stores are their:
-Customer service
-Product Range (limited to the products that will sell in that area)
-Low Prices
-Human Resource Policy

The core competencies Home Depot can transfer to the international market:
We think that Home Depot can transfer with the same competencies they are on the US market already. Only thing
they have to watch out for, is the difference in culture for which they maybe have to change the competency a bit.
-What conditions were necessary to stimulate the growth of the home improvement industry?

There were several conditions which have stimulated the growth of the home improvement industry. The first one is
the economy. For the last 8 years (at least till 2001) the most influence on the growth of the home improvement
industry. In a good, growing economy a lot of people feel the need to refurbish/ renovate their houses. A substantial
amount wants to do that themselves. More and more customers, more sales, more growth of the home improvement
industry.

Technical advancement is another item that stimulated the growth of the home improvement industry. Because of the
application of for example scanning systems to improve checkout time and productivity improvement programs
processes went among others quicker, became more attractive to go to a home improvement store. More attractive to
go to one of the stores, more customers, more sales, more growth of the home improvement industry.

A third factor that stimulated the growth of the home improvement industry was the good divided market. Good
divided between the larger retailers (like Home Depot) and smaller competitors. Of course there was competition
between the larger ones and the between the smaller competitors, but in general there can be said that it was a rather
peaceful environment, which stimulated for growth.

The fourth factor, which helped to stimulate the growth of the home improvement industry, was the changing needs
of customers. The customer needs changed from spending, spending, spending to a more quality value. This quality
could be offered, home improvement became (more) interesting, more customers, more sales, resulting in growth of
the home improvement industry.

-Would you purchase Home Depot stock? Why (not)?

-What competitive strategy is Home Depot following?

-What corporate strategy is the company following? Why?

Would you purchase Home Depot stock, and why?

It seems that The Home Depot has not quite been able to live up to expectations of the professional stockbrokers.
Growth stabilizes and it looks like competitors are closing in. As an answer to the stated question we give a
moderate no.

What competitive strategies is the company following

In the beginning the competitive strategy was that they would offer anything at a low price, this system was enabled
by the superstore-formula the home depot used and pushed competitors into the niches of the market
Now, new battlegrounds are especially expansions to foreign markets (outside of the U.S.) and Technological
Development.
We can say that The Home Depot has basically one major rival company which is by far the most important in the
current situation, in the market which is Lowe's.
It looks like competitors are gaining grounds on Home Depot in terms of innovation and customer services.

What corporate strategy does Home Depot use and what is the role of strategic managers?

The Home Depot integrates a dynamic corporate level strategy commensurate to its ability to sustain rapid
expansion. The Home Depot has primarily used a Growth / Concentration / Horizontal strategy to achieve
unprecedented growth. The firm focuses on expanding their products into multiple geographic locations at the same
point in their value chain, while simultaneously increasing the range of products and services offered to current
markets.
The home Depot uses both an internal development strategy for expansion as an acquisition strategy. Although it
has to be said that the internal Development strategy is most commonly used (especially in the United States).
Acquisition is more common in foreign markets or If a region is unable to digest the cluster theory, in such a case,
The Home Depot will modify their culture to make it compatible with the new strategy. For example, The Home
Depot acquired Aikenhead's Home Improvements Warehouse chain in Canada, and then formed a joint venture with
the company to insure a smooth transition of corporate cultures

The Home Depot Portfolio strategy is formed by the strategic plan laid down by the founders of the company as well
as the store-owners who have to adapt this system in order to match with local demand. The basic portfolio is being
enforced on a store by the headquarters but after that the store managers have the opportunity to adjust their
portfolio.

The Home Depot Management is layered so there are both vertical and horizontal linkages among the firm's
management. The bottom of the structure consists of store department managers governed by one store manager
responsible for delegating duties and upper management's directives.

The placement of international operations on The Home Depot's organization chart reveals that the firm treats
international stores similar to those in the U. S. divisions

According to the strategic management of Home Depot, they like to concidder themselves as really not so important
at all. They seem to have the philosophy that the real work and the real success of the company depends on the
people who deal with the customers every day in the stores. Strategic managers at home depot are more like
moderators then like managers.

-What is the importance of corporate culture to Home Depot? Can it be transferred to the new smaller stores?
Internationally?

The corporate culture, together with the norms and (core) values, form basics of the identity of the company. Almost
everything the company does can related to the identity of a company. Because everything can be related to the
identity of a company (and thus the corporate culture) we have the opinion that the corporate culture is very
important for Home Depot.

We can not see reasons why the corporate culture can not be transferred to the new, smaller stores. The information
available about theses smaller stores gave us the idea that the way of doing business in principle is the same as the
larger stores. Personnel and customers are still very important for example. Corporate cultures can also be taught
upon a certain level, it is a question of looking for the right personnel and when necessary try to make them
understand the corporate culture and maybe teach them.

In the previous paragraph, we had to do with the transfer of the culture in the same country. We have the opinion that
there are too much differences between the US (corporate) culture and other countries' (corporate) cultures. Too
much differences to transfer the complete corporate culture internationally. Some parts can be transferred; maybe
parts in the upper two levels of a company's corporate culture, but it can not be transferred as a total.
Conclusion.

Home Depot has quiet a lot of core competencies with which they can be extremely beneficial in the market. We
think they should go on with their expansion, maybe not that much in the USA but for sure in Canada and Mexico.
In the USA they have a distinctive competency with their rapid expansion and they should keep this in site to keep
this distinctive competency.

Their customer service can not be seen as a distinctive competency because Home Depot's biggest competitor has
similar services. Maybe, Home Depot can create new systems, systems as they have created before, that supported
their customer service and then try to get the customer service a distinctive competency also. For the foreign markets
we would like to advise to Home Depot, to follow the similar customer service they are using for the domestic
market and then adjust it to the culture in those foreign markets.

Home Depot must keep on going with their Everyday low pricing and keep on checking competitors prices by
professional shoppers that report to the Management. Keep on searching for new vendors and manufacturers to be
able to anticipate on changes within the market. When doing this, they will be able to extend their product range as
well. Try to keep on establishing rights for products, so that only Home Depot is allowed to sell those products on
the market.

To be short in sentences, Home Depot has to keep their distinctive competencies distinctive by controlling the
market and actions made by competitors and try to make a core competency a distinctive one.

We think that it is a good idea to continue with the process of the smaller stores. People are maybe not getting tired
of shopping a whole afternoon for some products in a large box home improvement retailer, but it is close. With
these smaller stores, Home Depot can enter places more easy than would be the case with a large box store. These
kind of places would then not be at the same places large boxes can be placed, but maybe more to the centre.
Another reason is that it is cheaper to construct and maintain a smaller store. Other reasons why Home Depot should
continue with the smaller stores are: easier parking, less crowded aisles and quicker checkout. The large box stores
will still remain the growth engine, but together with the smaller stores a larger success can be reached according to
us.

There were several conditions which have stimulated the growth of the home improvement industry. The first one is
the economy. Although the US economy is not running that well nowadays, that is not a very bad thing because a lot
of products of Home Depot are recession proof. Home Depot should focus on these kinds of products.

Technical advancement is another item that stimulated the growth of the home improvement industry. According to
us Home Depot should continue developing/ improving the productivity and effectiveness improving programs, al in
the best interest for themselves and for the customers. Also internet should be continuously kept up to date/
improved to provide the best service possible fort he group of people who like to shop via the internet, although
these are not the real home improvement customers. Not the real ones because they need to feel and touch before
buying.

A third factor that stimulated the growth of the home improvement industry was the good divided market. If Home
Depot continues with the smaller stores the stable market will not be that stable anymore. Considering the fact that
Home Depot has among others a lot of experience and financial resources, we are convinced that Home Depot can
handle the competition on the market.
Changes of customer needs are hard to predict, but Home Depot has to try to foresee these kind of changes to be
prepared on what the customer wants and so strengthen its market leader position.

The Home Depot Stock seems to have had it's best days, for the past year the developments had been that
expectations have not been fully met, Stock values have been slightly decreasing and forecasts don't predict any
revolutionary change in the near future, And still Home Depot is not a bad stock to buy. Home Depot values
stockholders greatly and rewards them with a generous dividend every year

Home Depot is the Market leader in the Retail-construction market, However the market now shows signs of
saturation and Home Depot begins to have more worries about competitors, especially Lowe's is one to keep an eye
on. From the reports analyses and documents that we read it seams as if Home Depot has done less in the field of
innovation and R&D then other competitors, so we would advise Home Depot to invest in innovations other then IT,
because they seem to be pretty well up-to-level in the IT services department.

The Home Depot integrates a dynamic corporate level strategy commensurate to its ability to sustain rapid
expansion. Since inception in 1978, The Home Depot has enjoyed a 30% average annual growth rate thanks to it's
corporate strategy it was at the time one of the most rapidly growing companies in the U.S. The Home Depot has
primarily used a Growth / Concentration / Horizontal strategy to achieve unprecedented growth The firm focuses on
expanding their products into multiple geographic locations at the same point in their value chain, while
simultaneously increasing the range of products and services offered to current markets. Occasionally, the corporate
strategy follows a Stability / Short-term / Pause strategy to digest their rapid growth. From 1978 to 1983, The Home
Depot grew from an idea to a nationally recognized leader in the do-it-yourself industry. Home Depot's CEO
Bernard Marcus believed the only restraint The Home Depot faced was its inability to quickly recruit and train new
staff. The Home Depot's multidivisional organizational structure is collaborative with its current corporate structure.
One advantage of the multidivisional structure is the decentralization of decision making. This is widely used in the
corporate cultural of The Home Depot. For example, corporate headquarters set individual stores up so that they
were very similar, but individual managers could change a display or order more or less of a product if they could
justify the change.

The corporate culture is very important to Home Depot. In our opinion, the culture of Home Depot works well and
is transferable to the smaller stores. Going international with the same culture can create some problems, because
not the whole culture can be transferred. We think that for going international Home Depot should focus on a
culture, maybe different from the one in the US, with which the same good results can be gained. A maybe different
culture, but it must be in the line of the one of the US. Otherwise people will see Home Depot very different in
different parts of the world. This does not have to be bad, but as we understood from the case Home Depot wants to
maintain its image everywhere the same.

Basically the strategic managers have 2 main functions: To design business concepts and business processes that
give the company direction, a concept and structure which enables the company to distinguish itself and achieve
success more easily, To be a Watchdog for the business processes to work smoothly, anticipate to changes in the
environment of the company and to solve operational problems related to the business process, or concept.
Important is that the strategic managers get most of their ideas from the lower-level employee's this is invited and
encouraged in the open business culture of Home Depot.

Chapter 1: External analysis of Home Depot Inc.

What are the opportunities and threats facing Home Depot?

In this chapter we will try to make as clear as possible what we think the opportunities and threats facing Home
Depot are. These opportunities and threats will be summarised in the EFAS (the External Factor Analysis Summary).
The opportunities and threats in the EFAS will be combined with the strengths and weaknesses, which are
summarised in the IFAS, in the SFAS (the Summarising Factor Analysis Summary). For the SFAS, please see next
chapter.
The EFAS, as well as the IFAS, consists of 5 columns. In the first column, the 8 till 10 most important opportunities
and threats are mentioned. The second column is the weight column. In here, for each factor will be given a number
indicating the importance of this factor. Most important is 1.0, not important is 0.0. The total weight must be 1.0.
In column three a rate is created for each factor which signals how well a company responses to the factor. 5.0 is an
outstanding reaction, 1.0 means a poor reaction.
Column 4 shows the weighted score. This is the weight of each factor multiplied with the ratio of each factor. In
column 5 is explained why the factor is chosen, what its importance is.
The last step is then to add all the weighted scores. This will result in the total weighted score and this shows how
well a company is responding to current and expected factors in its external environment. The total weighted score
can be used to compare the company to others in the same industry, because the total weighted score for an average
firm in an industry is always 3.

Opportunities and threats concerning the company/ industry have to be identified by managers to make these
managers anticipate important developments that can have an impact on the firm. According to Kotler, principles of
marketing:

Opportunities occur when an environmental trend plays to a company's strength. Companies

can rarely find ideal opportunities that exactly fit to the objectives and available resources.

A company does not have to give the same attention to all threats. Managers should assess the likelihood of each
threat and the potential damage each could cause. Focus should then be on the most probable and harmful threats,
plans should then be prepared (in advance) to meet these.

To make clear what the opportunities and threats of Home Depot are, we will take important external elements and
of those we will give the opportunities and threats. The external elements we have chosen are:

-Economic forces
-Social environment
-Legal/ political forces
-Technological forces
-Market

Key External Factors

WeightRatingWeighted ScoreComments
Opportunities
Economy:
Growth.204.40Last 8 years (at least till 2001)most influence on HD
'''recession proof''' products.102.20People want the best even in bad economy
Social forces:
Ageing homes & baby boomers.155.75Important market for Home Depot
Legal/political forces:
Deforestation issues .104.40Important for image
Technological forces:
Internet.104.60New selling way, great outlooks
Market forces:
Bargaining power suppliers.052.10Supplier needs HD, not other way around
Threats
Legal/ political forces:
Traffic congestion.104.40Can restrain shops to open(on time)
Technological forces:
Internet.103.30Do not no(exactly) where it goes
Market forces:
No product differentiation.104.40Forces HD to compete on certain issues
TOTAL SCORES1.003.55

The opportunities and threats mentioned in the EFAS, are according to us the most important ones concerning Home
Depot. The ones with the most (possible) influence on the way Home Depot is conducting business.

For further comments (column 5), please see also the first part of the chapter. Al the items are discussed there.

Why did we take these specific items to discuss in our external analysis?

Economic forces.

Of the economic forces we will give the opportunities, because over the last 8 years (at least till 2001) it has been the
most important external factor influencing the home improvement industry and thus Home Depot. For example the
economic growth grew at an annual rate of 7.3% during the fourth quarter of 1999. Maybe as a result of economic
growth, more wealth etc, people started to realise that their home is one of their highest valued possessions. This
can be seen in the table below, where it shows that ''housing'' was the item on which in the years 1996 to 1999 was
most money spended. In this time there were a lot of people not looking for new houses but instead of that they
undertook a renovation. In these years the Do-It-Yourself (DIY) and the Do-It-For-Me (DIFM) projects grew in
quantity. This was among others due to the fact that a lot of houses, built before 1980, need repair. There are also
some specific neighbourhoods, which have restrictions on building new houses in the neighbourhood. These two
facts will for the coming years almost guarantee high demand for DIY and DIFM.
Economy allowed and will allow Home Depot to grow, even in cases in which the economy wasn't and will not be
that good. Growing fast means is often growing in unknown territory. That could prove to be an opportunity, while
market share will be increased, sales will go up, more brand awareness will be created etc. Also it could prove to be
a weakness. (Rapid) growth can take away managers attention from other stores. Another thing that could happen is
that it will take more money than expected to settle (a) business(es). This has actually happened to Home Depot in
the 80's. It has happened and although Home Depot will hopefully have learned from that experience, we can't
exclude that it will happen again.
Home Depot and other large participants in the home improvement industry produce ''recession proof'' products.
''recession proof'', because they offer the best and even in times where a bad economy is occurring, people want the
best for their money. This does not mean that in times of an economy slowing down that the sales will stay the same.
It is just that the 'recession proof' products are still attractable for customers in a slowing economy and that
compared to non ''recession proof'' products these products slowdown in sales will be less.

Social forces.

Social forces will be taking into consideration because it is a key success factor to building retailers to have the
ability to predict and respond to social and demographic trends. Predicting of and respond to social and demographic
trends on a timely basis grants among others Home Depot the possibility to stay ahead in the home improvement
industry because they know and give what the customers want on a timely basis.
The social forces concerning building retailers can be separated into the following two facts:

Ageing homes and baby boomers:

When we take a look at the US market, near the year 2015 the number of people with the age between 45 and above
is expected to reach 127 million. This is important for Home Depot (the home improvement industry in general
actually) because it is likely that these people will not so quick purchase another (new) house. Instead of that they
will probably renovate their existing homes. There are a lot of houses from before 1980. The chances are quite high
that a lot of these houses will be owned by baby boomers. These baby boomers, reaching the more retirement age,
will stay more and more home, save money. It is less expensive to drive to Home Depot and purchase some
materials and tools to make your own modifications to your house than to hire an expensive professional contractor.
In 1999, 52% of all home furnishing purchases was done by people with the age between 35 and 45. Analysts
predict that near the year 2010 this percentage will be increased with another 33%.

Changing consumer attitudes:

The consumer attitude in the 80's was an attitude of: spend, spend, spend. In the 90's this attitude changes to one
which was oriented on value. Because people became more value oriented, they became more home pride. They
wanted for themselves a beautiful home, also to show others what they have. This so called ''home pride'' helped to
shift the expenditures of home improvement and home furnishings into the high regions.
Another thing that changed during the 90's was the fact that more and more woman entered the home improvement
area. In 1999, woman accounted for 38% of all the DIY purchases in the USA. Some retailers even changed their
store(s) a bit to appeal more to woman.
The last changing consumer attitude we could find is the fact that nowadays a lot of purchases of DIY products go
via internet. In the year 2000, 4.8% of all the purchases went via the internet. This does not seem to be a significant
percentage, but it is an increase of 118%.

Changing consumer attitudes also hold a possible threat. It is possible that the needs/ attitudes of customers change
in a way negative for Home Depot. For example, customers turn away from DIY. Then there are still other segments
(DIFM and professional), but it would still mean a significant loss for Home Depot. This example might be a little
bit exaggerated, but it could happen. Other example in a negative change of customer attitudes could be that they do
not want lumber anymore but a better for the environment resource or that Home Depot is investing largely in stores
while customers decide that they only want to shop via the internet. Other way around is also possible.

Legal/ political forces.

These kind of forces are very important because they allocate/ assign power and provide constraining and protecting
laws and regulations. Laws and regulations can make or break a company, if not sufficient researched. There are two
major facts that influence the home improvement industry, which are:

Deforestation issues:
One of the main products used in the home improvement industry is wood. No player in the home improvement can
avoid this subject. Not even if they want to avoid it, because protests by environmental groups gave a lot of attention
to the environment and the influence of the home improvement industry on future generations. Actually, Home
Depot is the largest retailer of old growth rainforest wood in the USA. This issue of deforestation together with
protest of for example environmental groups made the heavy weights in the home improvement industry to become
'green' and change their way of conducting business to gain in the public opinion. It made especially the heavy
weights change, because most of the attention is aimed at these participants of the industry and so they have a kind
of role model.

Also the deforestation holds a possible threat. It could be that although Home Depot is doing a lot of effort (together
with effort -- > time & money) to be 'green', but that it does not change public opinion and that public does not buy
(or buy less of) Home Depot's products because they know that it is not that good for the environment.

Impact on the community:

Another quite high effect Home Depot has is traffic congestion. This is a community problem, which have prevented
a substantial number of Home Depot stores from opening on time or even at all. That is the difficulty of the industry
Home Depot is in, it attracts lots of customers (with a car) and lots of trucks to deliver goods. It is an important and
difficult issue to consider, because it can safe but also create a lot of problems. If Home Depot one forehand knows
that a specific community will not allow a store being built can save a lot of time, problems and money afterwards.

Technological forces.

The best example we can come up with is the internet as a technological force. Almost all the (larger) participants in
the home improvement industry spend time and money to be represented on the internet, because it is the general
opinion that internet will result in lower cost. No one actually knows where internet is heading now and how to uses
internet in a really successful way.
The most difficult problem Home Depot is coming across is the fact that it is rather difficult to adapt the physical
home improvement products to a virtual world. The customers of DIY are not satisfied with just a picture and a
description. These kinds of people want to feel, touch before buying.
Although it is difficult, businesses (including Home Depot) see the benefits of internet and understand that that it
will change the way customers will do business with them. They want to be prepared now, or start to prepare for this
change so that they do not be caught flat-footed. It may cost a lot now, but Home Depot (and others) are convinced
that the returns in the future will pay back in full.
Another technical force that was and will be an opportunity is the productivity improvement programs. These kinds
of programs are designed to make among others a more effective use of existing and new store space.
The last technical force that was and in our opinion will be an opportunity is the Electronic Data Interchange (EDI)
program. This is a paperless system which processes electronically orders from store to vendors, it alerts the store
when the merchandise is about to arrive and transmitted vendor invoice data. These kinds of programs save a lot of
time, effort and paper of course.

Market forces.

On the internet we came across a model of Porter, showing what the characteristics of competition in the home
improvement industry are. We will explain briefly each of the characteristics.

Rivalry among competitive firms:

The rivalry in the home improvement industry is rather high. The intense competition in the industry can be seen
from for example the profitability ratio. The 5 year average of gross and net margin is only 29% and 5%
respectively. Home Depot has a (5-10%) higher average than the industry, this is not that much higher compared to
the good (the best) financial performance the company has.
There is almost now product differentiation, so the companies have to compete on for example: customer service,
price, brand loyalty. A consultancy company revealed that the most successful companies in the home improvement
industry showed characteristics as entering quick new distribution channels and the development of creative
advertising campaigns. This is among others what Home Depot did/ does.

Potential entry of new competitors:

The home improvement market is quite fragmented. This means that there are opportunities for newcomers, the
barrier to enter the market is rather low and then especially in parts of the market where the presence of firms as
Home Depot do not exist. The part of the market where Home Depot or others like are situated, is hard to enter.
Starting up a company in an industry like this is real expensive. Start up cost together with the costs to become and
maintain ''green'' add heavily to the cost of a newcomer.

Potential development of a substitute product:

The main product in the industry was, is and at least for a while will be lumber. A lot of (older) houses need repair in
the USA, but it is unlikely that especially for these kinds of houses another product than lumber will be used.

Bargaining power of suppliers:

Because there are many suppliers for this industry and because there is almost no product differentiation real
bargaining power of suppliers does not really exist. Home Depot, as a real large retailer, has a certain power over its
suppliers. The suppliers are dependent on the superstore Home Depot is. Dependent in that way that they need in
this case Home Depot to survive.

Bargaining power of consumers:

The bargaining power of consumer is average in the home improvement industry. For small items they can go to
many different hardware/ DIY etc store. For larger products the consumers are likely to go to one of the superstores
like Home Depot. Bargaining power owned by consumers at these kind of stores is lower. Smaller competitors do
not compete with Home Depot on the market for larger products, they know that they will not be able to compete on
price, where most of the competition is fought in the home improvement industry.
Chapter 2: Internal analysis of Home Depot Inc.

What are the strengths and weaknesses facing Home Depot?

The strengths and weaknesses of the company are factors in the internal environment of a corporation. From the
marketing point of view the strengths and weaknesses are the critical success factors within a corporation. They
critically affect an organization's success and are measured relative to competition.

So, when searching for the strengths and weaknesses of a corporation, you are searching for the internal factors of an
organization. This searching can be named, internal scanning of which the outcome will be an organizational
analysis. By using a resource based approach, you will have to search for the critical strengths and weaknesses that
are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats.

The resources where the strengths and weaknesses can be found in the organization are for example, an asset,
competency, process, skill, or knowledge controlled by the corporation.

We will show the strengths and weaknesses of Home Depot, by putting them in an IFAS model that stands for the
Internal Factor Analysis Summary.

Key Internal Factors

WeightRatingWeighted ScoreComments
Strengths
Rapid Expansion.2051.00Outstanding growth in the last 5 years
Customer Service.154.45
Pricing.154.45Lower than competition
Product Range.104.40Wide and varied
Human resource policy.154.45High skilled personnel
Weaknesses
e-commerce activities.104.40Arrived late compared to other business to consumer companies
Customer retention.153.45Uncertainty that customers stick to HD concept

TOTAL SCORES1.003.6

Explanation to weight: 1.0 (most important) to 0.0 (not important)

Explanation to Rating: 5 (outstanding) to 1 (poor)

Strengths

Rapid Expansion

Home Depot expanded rapidly since their foundation. According a slogan which Alfred P. Sloan, past president of
General Motors once said, "with a GM dealership on every corner, people are bound to stumble in".

From 1997 to 2000-2002 Home Depot opened 426 stores and so grew in stores with almost 70% during those years.
Lowe's for example, which is Home Depot's main competitor, opened only 178 new stores and grew in stores with
40% during those years.

So, for rapid expansion we gave it the highest rate, because Home Depot is doing extremely well. The growth
figures of the last 5 years show that. Home Depot is one or maybe more steps ahead of their biggest rival Lowe's.

Customer Service:

Home Depot is working hard to satisfy their customers at all times and so is working to improve their customer
service always. As is mentioned in the case study of Home Depot, their customer service is differentiated from its
competitors.

Home Depot has a strong belief that giving customers a high quality service, will lead to customer cultivation.

Home Depot's pricing

Home Depot's pricing is also a strength of the company. With their "Everyday Low Pricing" strategy, they are
undercutting the prices of their competitors by as much as 25 %. So, Home Depot is always to more or less control
the market on the bases of price.

Home Depot's Product Range:

Home Depot has a very wide range of products that they are selling on the market. Their product range exists out of
about 40,000 to 50,000 products to serve the home improvement contractors, building maintenance professionals,
interior designers, and other professionals. Further on, they have their product range for Do-It-Yourself customers
(DIY customers), Buy-It-Yourself customers (BIY customers).

Nowadays it is an important factor to have a very wide product range. Customers nowadays rather go to a shopping
centre where they can find everything they need under one roof. So, customers of Home Depot can find everything
the need for their building, re-building etc. under the roof of a Home Depot store.

Home Depot's Human Resources Policy:

We can say that Home Depot has very high skilled employees. They are following several strategies to employ
people that share a commitment to excellence by emphasizing the importance of the individuals to the success of the
company's operations.

The process of attracting new employees is leaded by a very well structured plan. The applicants are asked to have
very high standards. Next to this, Home Depot pays all its employees a salary that is without a certain surplus in the
meaning of a commission. From Home Depot's point of view, when customers gets to know that a sales person gets
a certain commission, the small customers would think that they are not worth dealing with. That's why Home Depot
doesn't give any commissions on sales. However, they do give bonuses, but that is an addition to the salary, based on
the turnover and does not concern one customer.

Weaknesses:

Home Depot's e-commerce activities

Compared to other Business-to-consumer companies, Home Depot started up its e-commerce activities very late.
Such a big company as Home Depot should have been one of the first. We all know how important Internet
nowadays is and still is growing.

Customer retention

Research done by Home Depot is showing that most do-it-yourself customers are not loyal to one particular building
supply store. The do-it-yourself customers are always looking for the convenience of store location, product- quality
and value and for low prices according to their needs and wants.

Ok, Home Depot has a wide spread of stores all over the USA and is offering its products to the customers at a low
price level. However, customers will value themselves what the value a product will have for them and compare. So,
it is always a threat that customers will go to a competitors store when knowing or finding out that a product over
there has a higher value for them.

Chapter 3: Strategic forces.

What are the strategic factors facing Home Depot?

The chapter "Strategic forces" will summarise the strategic factors of a company by combining the external factors
of the EFAS and the internal factors from the IFAS. The SFAS is a powerful analytical tool for the strategic analysis
of a company. In the EFAS and IFES together only 20 internal and external factors were described. For the
formulations of a strategy, 20 is too much. That is why the SFAS only consists of 10 strategic factors. This is done
by putting the highest weighted EFAS and IFAS factors appear in the SFAS. In the first column the most important
EFAS and IFAS items are listed. Behind the items a letter is put, which indicate whether the item is a strength (S),
weakness (W), opportunity (O) or threat (T). The second column is also the same as for the EFAS and IFAS. It
handles with the weight of the items. Also the total must be 1, meaning that some of the items will have to be
adjusted. The third (rating) column is the same as for the EFAS and IFAS. Most of the ratings will be the same as in
the EFAS and IFAS, although this is not always the case. Also the fourth column is the same.
The fifth column is a different one that the fifth of the EFAS and IFAS. This "duration" column indicates a short
term (less than one year), intermediate term (1 till 3 years) or long term (3 years and beyond). The 6th column is the
same as it was for the EFAS and IFAS. In the SFAS, the total weighted score has to be calculated. This is done on
the same way as with the EFAS and IFAS, the same rule applies that the total weighted score for an average firm in
an industry is always 3.

Key Strategic Factors

WeightRatingWeighted ScoreDuration
S I LComments
Rapid Expansion (S).155.75XOutstanding growth in the last 5 years
Customer Service (S).104.40X
Human resource policy (S).104.40XHigh skilled personnel
e-commerce activities (W).054.20XArrived late
Customer retention (W).103.30XUncertainty that customers stick to HD concept
Economy:
Growth (O).104.40XLast 8 years (at least till 2001)most influence on HD
Social forces:
Ageing homes & baby boomers (O).155.75XImportant market for Home Depot
Technological forces:
Internet (O).104.40XNew selling way, great outlooks
Legal/ political forces:
Traffic congestion (T).054.20XCan restrain shops to open(on time)
Market forces:
No product differentiation (T).104.40XForces HD to compete on certain issues
TOTAL SCORES1.004.20

Chapter 4: Core Competencies Home Depot Inc.

Does Home Depot has any core competencies? If yes, what are they?

Before showing what Home Depot's core competencies are, we'll first explain what is meant by a core competency.

A core competency of Home Depot, would be something Home Depot will be extremely good in. Activities that
Home Depot as company can do exceedingly well. Core competencies can be seen as key strength. This means that
all strengths of Home Depot will come back in this part of the report as well, as they were mentioned in the IFAS
before.

Core competencies are also often called, core capabilities, because it includes a number of constituent skills of the
company. The more core competencies that are used by a company, the more refined they get and the more valuable
they become for the company.
Core competencies can be split up into two parts. They can be split up into, explicit knowledge and tacit knowledge.
Explicit knowledge is knowledge that can be easily articulated and communicated. Tacit knowledge is knowledge
that is not easily communicated because it is deeply rooted in employee experience or in a corporation's culture.
Below we have declared the explicit competencies in the headings and the Tacit competencies are explain in the
written part that belongs to the certain heading.

Core competencies can be found in the internal environment of a company. This means in the different departments
of the company, like in Marketing, Finance, Human Resources, Operation & Logistics (Production) and Information
technologies for example.

Rapid Expansion:

Home Depot expanded rapidly since their foundation. According a slogan which Alfred P. Sloan, past president of
General Motors once said, "with a GM dealership on every corner, people are bound to stumble in".

Home Depot experienced the same as GM experienced. They rapidly opened a lot of Home Depot stores in a market
and became the world's largest retailer in the Home Improvement Industry. We can conclude that Home
Improvements rapid expansion strategy is a strength that gave them the opportunity to stay ahead of their
competition.

This strength can be seen as the most important one of Home Depot, because Home Depot's competitors are also
starting to follow a similar expanding strategy. However, until now, Home Depot has been more beneficial than its
competitors.

One of the reasons why Home Depot is able to expand this rapid, is their very strong Balance Sheet situation. Home
Depot also grew much faster than its competitors. From 1997 to 2000-2002 Home Depot opened 426 stores and so
grew in stores with almost 70% during those years. Lowe's for example, which is Home Depot's main competitor,
opened only 178 new stores and grew in stores with 40% during those years.

So, for rapid expansion we gave it the highest rate, because Home Depot is doing extremely well. The growth
figures of the last 5 years show that. Home Depot is one or maybe more steps ahead of their biggest rival Lowe's.

So, we can say that Home Depot has Lucrative Store Locations & Large Number of Stores. To back-up their every
day growing business, we added their expansion program for new opening stores in the appendix of this report.

Customer Service:

Home Depot is working hard to satisfy their customers at all times and so is working to improve their customer
service always. As is mentioned in the case study of Home Depot, their customer service is differentiated from its
competitors.

To improve their Customer Service, Home Depot hired high-qualified and helpful personnel, give professional
clinics and called this kind of customer service "customer cultivation". These professional clinics are for example,
the demonstrations of methods and techniques of performing a job safely and efficiently.

Home Depot also shifted a lot of work to be done to the night. Like shelf stocking and price tagging for example.
This made it more convenient for the customers to walk through the aisles more easily. The employees of Home
Depot were then able to be of service to the customers during the day. The availability of personnel to attend to
customer needs is namely one clear objective of the Home Depot customer service strategy.

Home Depot uses several ways to serve its customers. By installing several kinds of computerised systems, like
barcode scanning systems and minicomputers, the check out times of the customers was also improved. The
checkout lines became shorter in length. It's a fact that long checkout lines annoy customers, which can become a
factor of not going to Home Depot to do the shopping over there.
Next to the services mentioned above, Home Depot is having their own truck rental service and a tool rental service.

Home Depot's pricing

Home Depot's pricing is also a core competency of the company. With their "Everyday Low Pricing" strategy, they
are undercutting the prices of their competitors by as much as 25 %. Their strategy is to send professional shoppers
to check on which price level the competitors are selling the same products as Home Depot is selling them for.
Home Depot does this regularly, so that they can anticipate on a lower price of the competition when needed.

For the biggest part of the pricing strategy Home Depot is following, they extremely depend on their suppliers.
That's why they have a large number of suppliers, which actually, co-operate very well with Home Depot. Home
Depot has about 5,700 vendors, from which they request a very high effort. There are very strict rules that the
suppliers have to follow to be and to stay a supplier.

They can keep on requesting this very strict rules and asking this very high effort of its suppliers, because they give
in return a tremendous turnover. This is once tested by an independent investigation company in a survey at a lot of
manufacturers.

Home Depot's Product Range:

Home Depot has a very wide range of product that they are selling on the market for home improvement contractors,
building maintenance professionals, interior designers, and other professionals. Further on, they have their product
range for Do-It-Yourself customers (DIY customers), Buy-It-Yourself customers (BIY customers).

Their product range exists out of about 40,000 to 50,000 products. This is including differences in colours and sizes.
What is so important next to their big variety and their wide range is the brand of the product. Home Depot sells
products with brands that only they are allowed to sell on the market. They also sell products with their own Home
Depot brand name. By following this strategy, they take care of the fact that products can not be copied by their
competitors.

Home Depot's Human Resources Policy:

We can say that Home Depot has very high skilled employees. They are following several strategies to employ
people that share a commitment to excellence by emphasizing the importance of the individuals to the success of the
company's operations.

They attract their employees for new stores by placing advertisements in local newspapers and when more
employees are needed, they display this at the stores that need more employees.

The process of attracting new employees is leaded by a very well structured plan. There is one day a week arranged,
especially to do job interviews. An open application request is also possible for people with experience and then
takes place via a so-called "on-the-spot" interview. The applicants are asked to have very high standards. They have
to run through a variety of tests, which is the preemployment test that Home Depot installed into the process. The
person will be for example tested on honesty, math and drugs.

Next to this, Home Depot has developed a system, which helps them to select the best-qualified people. The system
screens people for competencies and characteristics, which fit into the Home Depot structure.

The salary that is paid to the employees is not given with a certain surplus in the meaning of a commission. From
Home Depot's point of view, when customers get to know that a sales person gets a certain commission, the small
customers would think that they are not worth dealing with. That's why Home Depot doesn't give any commissions
on sales. However, they do give bonuses, but that is an addition to the salary, based on the turnover and does not
concern one customer.

Home Depot also trains its own employees in times of changes within the company. Like this, the employees are
also able to make progress within the company.

Tremendous Buying Power

Home Depot's market leadership provides them with a lot of advantages. One of these advantages is the tremendous
buying power they have towards the suppliers. Which supplier wouldn't want to supply a market leader?

Because Home Depot buys in big quantities, they have this enormous power to set the conditions with the supplier,
for example the delivery terms, in favour of their own hand.

Chapter 5: Distinctive Competencies Home Depot Inc.

Does Home Depot has a distinctive competency? If yes, what is it?

We are also first going to explain what a distinctive competency is, before we highlight them out of the Home Depot
case study.

Actually, it is quiet simple what a distinctive competency is, however not less important. The distinctive competency
of a company arises at the moment that the company creates it so well, that it is superior with this competency to
those of its competitors.

Basically, a competency becomes a distinctive competency when it meets three tests. At first the customer value,
which means that the company must make a disproportionate contribution to customer perceived value. Secondly
the competitor uniqueness, which means the company must be unique and superior to competitor capabilities. And
as last we mention extendibility, which means the company must have something that can be used to develop new
products/services or to enter new markets.

Home Depot's distinctive competencies:

Rapid expansion:

Home Depot's first distinctive competency is its Rapid expansion. With this rapid expansion it is able to reach a lot
of customers in their market. So, the customer perceived value will be that a Home Depot store is easy to reach.

Secondly, Home Depot is unique towards Lowe's Companies, which is Home Depot's biggest competitor. Lowe's
Companies admits even on its website that it is the world 2nd large home improvement company. Although Lowe's
Companies is also expanding rapidly, Home Depot is still expanding faster than Lowe's Companies is doing and so
more unique.

And the last topic, the extendibility is no problem for Home Depot, because they have a very good balance sheet and
so enough capital to expand.

Pricing:

As mentioned before, Home Depot often does research on their pricing level. This is done by professional shoppers.
With their "Everyday Low Pricing" strategy, they are undercutting the prices of their competitors by as much as 25
%.
Customer perceived value at the price is that Home Depot is the cheapest. Home Depot is cheaper than Lowe's
Companies and so unique to its competitor. And last but not least, Home Depot is checking regularly the prices of its
competitors and so also able to be extendible when prices have to change.

Product range:

Home Depot is selling 40,000to 50,000 products in each of their stores. The customer perceived value on Home
Depot's product range will be that they can find all the products they need for rebuilding or building under one roof.

The products are unique on the market, because of their brand name and the right which Home Depot is carrying,
that only they are allowed to sell the products by those brand names. So, they are superior to competitor capabilities.

We may assume that Home Depot has enough extendibility possibilities to gain new products from the vendors and
suppliers they have a business relationship with. With over 5,700 business relationships, there should be enough
possibilities.

Chapter 6: Competencies transferred to different markets

What core competencies does Home Depot possess that can be transferred to the professional contractor market?

Competencies transferred to the contractor market:

Concerning the core competencies of Home Depot to the professional contractor market we can tell you that Home
Depot has an extreme good customer service in this area. From commercial credit accounts to a fully staffed
Commercial Desk, Home Depot has everything what it takes to get jobs done as they mention themselves.

Home Depot offers special credit accounts for the professional contractors. Via this technique, the customer can pay
its bill online, which is off course very easy. No paper work, just a few clicks on the computer and the payment has
been made.

The second core competency Home Depot has in its capabilities is its commercial desk services. This commercial
desk is always possessed by Home Depot employees that have the right knowledgeable which are of top priority.
They can help the professional contractors to get a job done and off course do this on time and on budget. You can
reach the commercial desk by phone, fax or go and visit them at the desk itself.

When a professional contractor orders its good, they can request to have the product to be delivered at the site the
professional contractor is working and this service is given seven days a week and in some cases, even 24 hours a
day. Next to that, Home Depot has a 100 % hassle free return policy, which means that when a professional
contractor is not satisfied with the product, they can return it always. They do not need to come up with a good and
clear argument to get their money back.

Off course the competency of the wide product range of 40,000 to 50,000 is transferable to the contractors market.
Next to this product range, Home Depot is able to offer its customers in the contractors market 250,000 additional
special unique custom building and remodelling products, which they especially order then at Manufacturers. This
last factor is an example of the Buying power that Home Depot has.

So, we can conclude that the following core competencies can be transferred to the contractors market:

*Customer Service
*Product Range
*Low Prices
*Human Resource Policy
*Buying Power
What core competencies does Home Depot possess to the planned smaller stores?

We found some information on the internet about the planned smaller stores. It is not a lot of information, so a real
analysis what Home Depot competencies can be transferred to the planned smaller stores, is not possible.

These stores are planned to be situated in the cities and small communities and have a store space of about 25,000
square feet to 41,000 square feet. The normal average store is about 128,000 square feet. So, the size of the planned
smaller stores is still less than half the normal size of a Home Depot store.

So, we can conclude that Home Depot cannot stall all its products in such a planned smaller store. They will have to
limit the range of the smaller stores, to the products that really sell only. Because of their smaller size, Home Depot
is probably not even able to store the bigger products like lumber.

Home Depot's outstanding customer service can off course be transferred to the smaller planned stores. People that
live in the city will visit the stores and it is given that most people that live in big cities do not drive cars. That's why
it is for example very important, to have a delivery service.

Core competencies transferable:

-Customer service
-Product Range (limited to the products that will sell in that area)
-Low Prices
-Human Resource Policy

What core competencies does Home Depot possess that can be transferred to the international market?

We think that for Home Depot, the most important competency that can be transferred to the international market is
the rapid expansion competency. The US market is becoming quiet at this moment and so new markets have to be
found.

Using their expansion experience from the past, they become bigger and bigger on the international market also.
They are already quiet successful on the Canadian market with stores in seven provinces and have also almost 5
years of experience on the Mexican market. So, when using this same expansion strategy on those two markets, their
name will become familiar worldwide.

Transferable competencies to the international market, are actually the same as Home Depot uses now working in
their domestic market, the USA. They will only have to change the competencies a bit, depending on the culture of
the country.

Chapter 7: Large box (endless selection) versus smaller stores (convenience).

This chapter will explain what the differences and similarities are between the big box stores and the smaller stores.
A short explanation is dedicated to both chains.

In 1998 Home Depot opened four small outlets in New Jersey. These stores stocked tools, housewares and
decorating accessories but no basics like lumber and appliances. Home Depot says that these 4 stores were a good
learning experience, but the 4 stores are already converted into normal Home Depot stores. This does not mean
Home Depot abandons the small store concept, they have now a ''urban format'' store. A difference compared to the
first small store is the fact that this one does sells items as lumber but also urban necessities like closet organisers.
As the store managers says:,, You have to put in what really sells, there is not much room for mistakes''.

The large box concept relies on its huge size and on the almost unbelievable amount of products it stocks.
Customers can find here (depending on the store) almost 40.000/50.000 different kinds of products. These amounts
of space and products are accompanied with an excellent customer service. Whole days can be spend in stores like
this, to see what is offered and to make the ultimate decision. Some may think that these use stores do not work, but
in for example Home Depot stores it is almost always crowded.
The smaller stores consists of square feet storage of 25.000 till 41.000. This is less than a third of the size of a
normal average Home Depot warehouse. Not only Home Depot is trying to conduct business with smaller ''mini-me''
stores. Also Wal-Mart and Best Buy are doing this, and these are not in the same industry as Home Depot. This new
way of doing business could be driven by real-estate restrictions and demographics. Another reason could be that the
management of these large box retailers sees that although customers like the offers of a large box store and
sometimes the low price that are coming with a large offer, they get kind of tired of spending Saturday afternoons
walking through stores with the size of an airplane hangar. A third possible reason that retailers decide to use smaller
stores to conduct business is the so-called Alexander complex. The reason for companies with an Alexander
complex to use smaller stores is that they have no new worlds to conquer. If you as a company have already almost
everywhere large stores and you want to grow more in some areas, it could sometimes be better to use smaller
stores.

What are the differences and similarities between the two chains?

Large box storesSmall stores

-Shelves to the ceilingLower shelves

-Often have to walk throughWalk in, walk out
whole store to get what you want
-For lots of/ larger communitiesFor small communities
Almost all productsSelected products
Lots of every productavailableLess of every product available
All possible colours, sizes, shapes etc.Reduced range in colours, sizes, shapes etc.

Other advantages of the smaller store are: easier parking, less crowded aisles and quicker checkout.

Chapter 8: The home improvement industry.

In this chapter we will give a brief overview of the home improvement industry in the US. Furthermore, some
conditions that were necessary to stimulate the growth of the industry will be given.

Brief overview of the home improvement industry in the US.

The home improvement industry is primarily focused on the selling of merchandise for personal and household
consumption. According to the information we found (slightly outdated; 1999) the home improvement industry is
still in its booming stage. The market structure shifted around 1999 from monopolistic to oligopoly.

A monopolistic market is a market in which many buyers and seller trade over a range of prices rather than a single
market price.
An oligopoly market is a market in which there are a few sellers that are highly sensitive to each other's pricing and
marketing strategies.

It shifted to an oligopoly because of among others the competitive strategies showed by most of Home Depot's
direct competitors.
During the 90's all three components of the home improvement industry (namely; do-it-yourself, buy-it-yourself and
professional) saw a large increase in sales. Highest growth of sales was seen in the home centres and maintenance
service. Before the 90's, the largest part of the market focused on mass or medium-market building material and
home improvement and garden projects. In the past five years, a trend can be seen in the development towards high-
end design and renovations.

Conditions necessary to stimulate the growth of the home improvement industry.

The first item that comes to our mind concerning the stimulation of the growth of the home improvement industry is
the economy. This factor is already extensively described in the chapter concerning opportunities and threats, so a
rather brief comment is dedicated to this matter in this chapter.
In a growing economy, lots of people feel the need to refurbish/ renovate their houses. Of these people, a substantial
amount will want to do this themselves. This part will visit retailers in the home improvement industry. In this way,
the home improvement industry grows. A bad economy does not have to mean that the home improvement industry
goes bad. Especially large retailers in the home improvement industry, offer '''recession proof''' products. Even in
times of bad economy people want to refurbish/ renovate their houses. A reason could be that they can't or won't
afford a new house. Of course the amount of people that will refurbish/ renovate their house in times of a bad
economy will be less than in a good (growing) economy, but the part of these people who want to do it on their on is
larger. This is because we assume that when the economy isn't that good, people probably have less to spend and do-
it-yourself is most of the time cheaper (if you know what you're doing) than hiring a professional. The products of
some of the largest retailers are '''recession proof''', because they offer the best and even in times where a bad
economy is occurring, people want the best for their money.

Another item that made the home improvement industry grow is technological advancement. Research showed that
not only Home Depot started with for example scanning systems to speed checkout time, productivity improvement
programs etc. Home Depot as well as other players in the home improvement industry kept coming up with new
systems and improve existing systems to fasten their processes, the lower costs etc. Because all these programs in
the end also resulted in lower prices for customers, the products became more interesting, more people went to this
kind of retailers and so the total home improvement industry grew.

A third factor that stimulated the growth of the home improvement industry was the good divided market. Home
Depot and other large competitors had super stores. Other smaller competitors, knowing that they could not win
competition from these large giants, looked for and entered niche markets. Because of the good divided market, the
market was rather stable. Of course, there was (fierce) competition between the large stores and between the others
in the niche markets, but it was more stable than it would have been the case if all the participants in the home
improvement market would have been competing. The rather stable situation gave opportunity to grow in a rather
peaceful way.

The fourth factor, which helped to stimulate the growth of the home improvement industry, was the changing needs
of customers. This factor may be a result of the growing economy, especially in the last decade. Economy was
growing, people had more money to spend, spended a lot on their homes -- > their most prized and expensive
possession. It is our opinion that without the growing economy, this effect wouldn't arise. Another change in
customer needs is the, as mentioned before, change from ''spend, spend, spend'' to a more value oriented one. This
change in mentality means that they are not just spending, they want (the best) value for their money, also in home
improvement products. Home Depot and others could offer this, more products sold, more profit, more investment
and so more growth in the home improvement industry.

Chapter 9: Corporate Stock

Would you purchase Home Depot stock, why?
Introduction
In order to be able to make a good decision whether or not a companies stock should be purchased we should have a
look at the key financial data of this company. In this chapter I will show you with some updated Financial data of
the company as well as a professional stockbroker's analysis after which we can make a good evaluation whether or
not the Home Depot stock is worth purchasing in the situation it is presently in.

The Home Depot stock analysed

In the first quarter of 2002, Home Depot reported earnings of $856 million, or 36 cents a share, up 35% from a year
ago. On average, analysts had been projecting earnings of 33 cents a share, according to Thomson Financial/First
Call, although many had brought up their estimates Monday after Lowe's reported earnings. Revenue was $14.3
billion, up 17% from last year's first quarter but slightly less than the $14.7 billion consensus estimate.
"While visibility to earnings growth remains clear through the next two quarters, more difficult comparisons are on
the horizon -- beginning in the fourth quarter,". A highly respected stockbroker ones wrote. "The likelihood that
earnings will decelerate is quite likely."
Meanwhile, Home Depot said it was comfortable with analysts' second-quarter Dividends projection of 47 cents a
share. This was the only earnings guidance the company gave, a sharp contrast to Lowe's better looking forcasts for
the remainder of the year. On Monday Lowe's raised earnings projections for both the second quarter and full year.
Home Depot's is currently quiet on the forecasting front had some investors worrying about a decrease in stock-
price. Indeed, by virtually every measure, Lowe's outperformed Home Depot in the first quarter. Lowe's reported
stronger earnings and sales growth. It also said same-store sales, which measure activity in shops open at least a
year, were up 7.5%, while Home Depot said comps rose 5%.
Key Financial Data:
Price & VolumeValuation Ratios
Recent Price $26. OktPrice/Earnings (TTM)16.69
52 Week High $52.60Price/Sales (TTM)01. Mai
52 Week Low $23.18Price/Book (MRQ)03. Feb
Avg Daily Vol (Mil)14.84Price/Cash Flow (TTM)13.52
BetaJan 33

Per Share Data

Share Related Items

Earnings (TTM) $Jan 56

Mkt. Cap. (Mil) $60,702.34Sales (TTM) $24.83
Shares Out (Mil) 2,325.76Book Value (MRQ) $Aug 64
Float (Mil) 2,232.70Cash Flow (TTM) $Jan 93
Dividend InformationCash (MRQ) $Jan 72
Yield %0.92Mgmt Effectiveness
Annual Dividend0.24Return on Equity (TTM)19.44
Payout Ratio (TTM) %Dez 73Return on Assets (TTM)Dez 69
Financial StrengthReturn on Investment (TTM)17.66
Quick Ratio (MRQ)0.58Profitability
Current Ratio (MRQ)Jan 52Gross Margin (TTM) %30.83
LT Debt/Equity (MRQ)0.07Operating Margin (TTM) %10. Jun
Total Debt/Equity (MRQ)0.07Profit Margin (TTM) %Jun 30

Dividends Earnings Analysis:

HOME DEPOT INC (NYSE : HD)
Earning Estimates | Broker Recommendations
Earnings Estimates
Quarter Year
Last
Oct 2002This
Jan 2003Next
Apr 2003This
Jan 2003Next
Jan 2004
EPS:$0.40$0.31$0.41$1.57$1.79
Prior Year:$0.33$0.30$0.36$1.29$1.57
% Growth:17.50%3.15%12.96%21.66%14.35%
PE: 17.115.0

Quarterly Earnings History & Surprises

Oct 2001Jan 2002Apr 2002Jul 2002Oct 2002
Estimate:$0.33 $0.28 $0.33 $0.47 $0.40
Actual:$0.33 $0.30 $0.36 $0.50 $0.40
Difference:$0.00 $0.02 $0.03 $0.03 $0.00
% Surprise:0.00% 7.14% 9.09% 6.38% 0.00%

Earnings Estimate Range & Trend History

This Quarter
Jan 2003Next Quarter
Apr 2003This Year
Jan 2003Next Year
Jan 2004
Earnings Estimates
Avg Estimate:$0.31 $0.41 $1.57 $1.79
Low Estimate$0.29 $0.40 $1.54 $1.65
High Estimate$0.36 $0.41 $1.58 $1.90
# of Analysts18 6 19 21
Year Ago$0.30 $0.36 $1.29 $1.57
EPS Growth3.15% 12.96% 21.66% 14.35%
Consensus EPS Trend
Current$0.31 $0.41 $1.57 $1.79
7 Days Ago$0.31 $0.41 $1.57 $1.80
30 Days Ago$0.32 $0.41 $1.58 $1.85
60 Days Ago$0.32 $0.41 $1.58 $1.85
90 Days Ago$0.32 $0.41 $1.58 $1.86

Overall Buy-Sell advice

HOME DEPOT INC (NYSE : HD)

Earning Estimates | Broker Recommendations
Average Recommendation

This Week
1.90

Last Week
1.81

Change
0.09

(strong buy) 1.00 - 5.00 (strong sell)

Home Depot Stock price history

Final conclusion:
It seems that The Home Depot has not quite been able to live up to expectations of the professional stockbrokers.
And the current shaky financial-economic situation should make everybody think twice about investing in any
company what so ever.
The Key financial data look okay, but not really fantastic either.
I would say that an investment in Home Depot is quite risky at this time, especially if you are planning a long term
investment. even if the Overall buy-sell advice is a moderate buy advice I would still consider other corporations as
a better possibility/option then Home Depot .Lowe's for example might be worth taking a look at. So the final
answer to the question if I would Purchase home depot stock would be that I would if I had find no other solutions,
but i would take a real good look at other companies before investing in Home Depot.

Chapter 10: Competitor strategy

What competitive strategies is the company following?, Why?

Introduction:

When the retail building supply industry was moving from a market which was characterised by loads of little,
independent ran firm's to one dominated by regional and national chains of vast superstores, The Home Depot
developed the concept of the 'all-in-1 home-improvement discount warehouse' which was designed to be all things
for all people. The main rival at the time was Lowe's which was originally a chain of smaller stores but transformed
to the megastore-policy like Home Depot. Including, for example, Hechinger, BMC and Hughes Supply
Since 1997 the trend became that the two biggest competitors(Home Depot and Lowe's) became stronger while
small local competitors where slowly disappearing from the market. This is Especially true for the 'Do-it-yourself'
segment of the building retail market.Which was growing in importance quite rapidly.

The Building-retail market served 2 distinct clients :

1.The professional building contractor
2.The 'Do-it-yourself' homeowner

Now that the regular Building-retail market seems to be saturated all the competitors in the Building-retail market
have now been searching for new battlegrounds to go into competition.
New battlegrounds are especially expansions to foreign markets (outside of the U.S.) and Technological
Development.

Unfortunately there is not much we can say about the Strategy of the Home Depot since there is little information
available. Which is understandable since no company will publish their information on how to battle the
competitors. After all, The competitor is always listening.
However what we can do is listen to what some analysts and researchers have to say about the topic and compare
company actions to one another. Which we will do in this chapter of our report.
We can say that The Home Depot has basically one major rival company which is by far the most important in the
current situation, in the market which is Lowe's. Thus, most of the information in this chapter will be about the
Competition between those two companies. We will tell you about the other competitors but it is fair to say that they
have really no effect on the competitive strategy of The Home Depot and are therefore less interesting.
Competitive Technolgical Strategy
For years Home Depot, the nation's third-largest retailer, rolled out its bright-orange boxlike stores in an assembly-
line fashion, opening more than 1,000 outlets since 1985. Lowe's was a distant runner-up in home improvement
sales. And while other retailers scrambled to bring their businesses to the Internet, Home Depot barely bothered.
Business was too good in stores for them as it was.
However, Home Depot stepped up its e-commerce efforts five months after Lowe's began pushing its products
online. It's yet another example of how the No. 1 home improvement company is looking over its shoulder at a rival
that company executives insist is irrelevant anyway.
At this point, the battle for Internet customers is pretty low-key. Officials at Home Depot and Lowe's decline to
provide online sales numbers, though both companies admit the numbers are small so far. What's striking, however,
is that the two have clearly identified e-commerce as a growth business and are putting more money into it even as
they scale back in other areas.
Home Depot's annual report, for instance, notes that the company's administrative expenses as a percent of sales rose
to 1.8 percent in 2000, from 1.7 percent the previous year, and it attributed that increase largely to spending on the
Net. The difference sounds small, but it's significant for a company that has steadily cut administrative expenses
over the past two decades and had total sales of $45.7 billion in 2000. And Home Depot's decision to roll out its e-
commerce offerings nationally comes after eight months of testing in three cities that clearly left its executives with
an appetite for more.
In turn, Lowe's is continuing to build its business on the Net. A few weeks ago, it opened a new portal, Accent &
Style, which offers home decorating tips. If all goes as planned, the site will drive sales online and in stores.
Both companies emphasize that the Web has its limits, and each site offers only an abbreviated selection of items.
Homedepot.com sells about 40 percent of the 50,000 items it stocks in stores; the Lowe's Web site carries about 35
percent of its total store inventory.
Below we can find a chart showing the Development in offline and online development of revenues.
IMPROVING HOME IMPROVEMENT
Lowe's has a long way to go before it catches up to Home Depot, but the challenger is growing fast.
OFFLINEHOME DEPOT LOWE'S
Revenue in 2000
(change from 1999)$45.7 billion
(19 percent) $18.8 billion
(18.1 percent)
Income in 2000
(change from 1999)$2.6 billion
(11.3 percent)$810 million
(20.4 percent)
Market capitalization$114.2 billion$24.4 billion
Stock change since Jan. 2+7.7 percent*+41.8 percent*
Stores1,100660
New stores opening in 2001200115 to 120
ONLINEHOME DEPOT LOWE'S
Launched nationwide April 2001 (pilot program in select cities started August 2000) November 2000
Products sold online/in stores20,000/50,00014,000/40,000
Visitors in March1,063,000 907,000
FulfillmentFrom stores in various cities; items are then shipped via UPS. From stores and distribution centers; items
can be shipped or picked up at stores.
Delivery charge $4.91 for first 15 pounds; 43 cents each additional pound.As low as $4.93; increases with distance.

The Home Depot Inc. announced last week that it's embarking on a sweeping enterprise application integration
(EAI). Which should enable the company to supply better and easier Cusomer service to customers (CRM). With the
new system the Home Depot hopes to be better able to push customer relationships which is an initiative, analysts
said have lagged in the retail market
Among its benefits, said Charlie Weston, director of information services at Home Depot, is that the company will
be able to move data contained in MQSeries messages in as close to real time as possible, instead of in batches,
which tend to clog its frame-relay network. It will also le While its EAI initiative is under way, Home Depot is
moving ahead with a customer relationship management (CRM) application to match with the new EAI-computer
system. The retailer said last week that in September its Tampa call center will begin using applications from
Basking Ridge, N.J.-based Avaya Inc.
The application will let call centre agents access information about product pricing, delivery and installation
schedules, said Ed Buter, senior manager of information services at Home Depot. He added that it should increase
customer satisfaction, as well as free up store personnel.
However, Lowe's has had a call centre like such for a year already, using applications from another company called
Remedy Corp based in Mountain View, Calif. This center can handle queries over the phone and via e-mail. Lowe's
has also been experiencing with chat room capabilities and appliances for communication between store-owners and
customers, but customers prefer to stick to e-mail
Analysts Opinion
Several analysts have said that in markets where Home Depot now directly competes with Lowe's -- such as Dallas,
Seattle and Atlanta. They lost sales due to the "novelty effect," but that overall they were pleased with how sales
kept up.
After all, Lowe's, with 785 stores, is seen having much greater store-growth potential than Home Depot, which runs
close to 1,400 stores. By contrast, much of Home Depot's gains will have to come from less sexier ways such as cost
cutting, revamping the supply chain and in-store initiatives.
The analysts preference for Lowe's over Home depot is justified when we look at the Stocks of both companies.
Lowe's still trades at a slight discount to Home Depot, although it is a thin gap that narrowed even more recently.
Which is strange if you concidder the fact that Home Depot is still about twice the size of Lowe's. Based on recent
price levels, Lowe's trades at 23.2 times next year's estimated earnings, while Home Depot's price-to-earnings ratio
is around 25.
Competitor analysis
LOWE'S
Lowe's Companies, Inc. is a $22 billion retailer of a complete line of home improvement products and equipment.
The company serves more than seven million do-it-yourself and commercial business customers each week through
more than 800 stores in 43 states. Lowe's is the world's second largest home improvement retailer and the 14th
largest retailer in the U.S.
Lowe's is in the midst of an aggressive expansion plan, opening a new store on average every three days. The
company's current store prototype has a 121,000-square-foot sales floor with a lawn and garden center averaging an
additional 30,000 square feet. At the beginning of 2002, our retail square footage totaled approximately 81 million
square feet.
In 2001, Lowe's opened 115 new stores, the majority of which were in metropolitan markets. In 2002, the company
plans to open 123 new stores and continue its emphasis on cities with populations greater than 500,000, such as New
York, Boston, and Los Angeles.
Lowe's is a Fortune 100 company, which means that it is ranked among the top 100 most valuable companies in the
world our 56-year-old company employs more than 110,000 people. Approximately 7% of the stock is owned by
employees through the company's Employee Stock Ownership Plan (ESOP) and its 401(k) plan.
LOWE'S POLICY STATEMENT: All employees of Lowe's are expected to be honest and act in good faith, and to
conduct themselves in such a manner to avoid any situation in which his or her interest or the interest of his or her
family might adversely affect the best interests of the Company. The following statements support this policy. All
vendors and suppliers are also expected to support and comply with these policies. Failure to do so may result in
discontinuance of business relationships.

HECHINGER
Hechinger was located in the mid-atlantic states and was recently acquired by Leonard Green & Partners. Hechinger
had financial problems for several years before it was acquired.
BMC
BMC was renamed Building Materials Holding Corporation. The company had over 50 stores in 10 Western states
and was focusing on the Professional market sector

HUGHES SUPPLY

Had 310 stores, Principally in Florida, Georgia and other southeastern states. The sales in 1997 were estimated to be
$1,810,000,000 mainly because the company made some acquisitions in the year before which was good for an
additional $340 million dollar.
A big Difference between Hughes and Lowe's and Home Depot is that Hughes is focussing mainly on the
Professional market sector and is market leader in this sector.

Chapter 11: Corporate Strategy

What Corporate Strategy is the Home Depot following, and why?

Corporate strategy key issues

1 Directional Strategy (the companies overall orientation towards growth, stability or retrenchment?).
2. Portfolio Strategy: (The industries or markets in which the firm competes through its products and business
units?)
3. Parenting Strategy: (The manner in which management coordinates activities and transfers resources and
cultivates capabilities among product lines and business units?)

Directional Strategy:

Just as every product or business unit must follow a business strategy to improve its competitive position, every
corporation must decide it's orientation towards growth by asking the following three questions.

1.Should we expand, cut back, or continue our operations unchanged?

2.Should we concentrate our activities within our current industry or should we diversify into other industries?
3.If we want to grow and expand, should we do so through internal development or through external acquisitions,
mergers or joint Ventures?

A corporations'
Directional Strategy:
3 main Questions to be asked to the organization:
4.Should we expand, cut back, or continue our operations unchanged?
5.Should we concentrate our activities within our current industry or should we diversify into other industries?
6.If we want to grow and expand, should we do so through internal development or through external acquisitions,
mergers or joint Ventures?

(1)The Home Depot integrates a dynamic corporate level strategy commensurate to its ability to sustain rapid
expansion. Since inception in 1978, The Home Depot has enjoyed a 30% average annual growth rate. Their
phenomenal growth rate is a partial product of their corporate level strategy. The Home Depot has primarily used a
Growth / Concentration / Horizontal strategy to achieve unprecedented growth. The firm focuses on expanding their
products into multiple geographic locations at the same point in their value chain, while simultaneously (2)
increasing the range of products and services offered to current markets. For example, as the company penetrated
markets throughout the U. S. Sunbelt, they experimented with enlarging their store's garden centers and initiated an
"Expo Design Center" storefront. The expo centers are a geographic market niche, targeting upscale homeowners by
utilizing computer-aided design technology (CAD) and offering top-of-the-line major kitchen appliances.
Occasionally, the corporate strategy follows a Stability / Short-term / Pause strategy to digest their rapid growth.
From 1978 to 1983, The Home Depot grew from an idea to a nationally recognized leader in the do-it-yourself
industry. Home Depot's CEO Bernard Marcus believed the only restraint The Home Depot faced was its inability to
quickly recruit and train new staff.
The rapid expansion into the unknown territories of Houston and Detroit took management's attention away from the
other stores and their earning dropped 40% in 1985. For a brief period in 1986, The Home Depot followed a
geographically oriented Retrenchment / Survive / Divestment strategy in Detroit, Michigan. They withdrew from
Detroit, by selling off their five brand new stores. After regrouping in 1987, The Home Depot returned to a
horizontal growth strategy by opening six California and two Tennessee stores.
(3)The home Depot uses both an internal development strategy for expansion as an acquisition strategy. Although it
has to be said that the internal Development strategy is most commonly used (especially in the United States).
Acquisition is more common in foreign markets or If a region is unable to digest the cluster theory, in such a case,
The Home Depot will modify their culture to make it compatible with the new strategy. For example, The Home
Depot acquired Aikenhead's Home Improvements Warehouse chain in Canada, and then formed a joint venture with
the company to insure a smooth transition of corporate cultures in Canada. In this way the Home Depot acquires the
benefits of getting "Jump-started" in a foreign market as well as the availability of an existing corporate
infrastructure and market.

Portfolio strategy:
The Home Depot Portfolio strategy is formed by the strategic plan laid down by the founders of the company as well
as the store-owners who have to afdapt this system in order to match with local demand. The basic portfolio is being
enforced on a store by the headquarters but after that the store managers have the opportunity to adjust their
portfolio. So you see that the power is a bit Decentralized and that the store managers play an important part in the
formation of the portfolio strategy.
The Home Depot's portfolio strategy focuses mainly on the non-specific goods. Home Depot aims to position
themselves in the middle of the market in a very broad way. This enables them to supply homeowners, basic
businesses and non-specific project construction. This is by far the most profitable segment of the market and
especially if you are positioned in it so broadly as Home Depot is. This means that Home Depot also serves clients-
demands who are semi-specific in nature (Think of for example a regular product with a specific characteristic such
as a kind of screwdriver, a certain kind of lightbulb etc.). But also very normal and everyday products such as a
christmas-tree. This aspect combined with the size and priceadvantages of Home Depot makes it almost impossible
for any regular do-it-your-self'er to get around Home Depot So if you want to renovate your house Home Depot
really is the best deal for most people.
However, the portfolio strategy cannot be the same all over the world, since there is such a thing as local housing
characteristics especially in such a big country as the U.S. where the Home Depot gets most of it's revenues from.
Moreover it is the case that there is no such thing as 2 similar houses or customers for that matter. The Home Depot
specifies 2 factors that might affect such a change in demand. These are

1.Climate and the matter in which Seasonal changes are endured and effect life
2.Local style/ Prefered "look" of real estate

For Example of point 1 we can say that there is probably more demand for isolation materials in Canada then in
Miami since the climate and normal whether conditions are completely different. One can also think of for example,
Oklahoma where tornadoes are an annual phenomenon and a scare to homeowners. In such a region Home Depot
will have to supply materials for building a hiding place, such as a cellar or a basement as well as information and
instructing materials.
For example at point 2. We can say that there is a diffrence per region of what is being perceived as "beautiful" and
what is "practical". For example a pool in the backyard is a common phenomenon in Florida and California but not
in New York. This is because there is less space in New York then in Florida or California but also because of the
climate. So you see a pool in New York is not practical whereas in Florida it is. On the other hand more people in
New York might have a roof-terrace then in Miami. Which offcourse has an effect on the customer demand.
One might also think of the building styles, in Virginia, The building style is usually more like a typical European
style (there are also a lot of old houses) with lots of elements of Baroque, and Roman style whereas in Miami, Art-
Deco is more perceived as beautiful

Parenting Strategy:
The Home Depot's multidivisional organizational structure is collaborative with its current corporate structure.
Advantages of the multidivisional structure include: emphasis of rapid growth, augmented facilitates management
development and training, utilization of decentralized decision making, enhancements towards profit and loss
responsibility and overall accountability. This system is more costly than other organizational structures, but The
Home Depot's rapid growth and increasing profits warrant the added expense.
The Home Depot Management is layered so there are both vertical and horizontal linkages among the firm's
management. The bottom of the structure consists of store department managers governed by one store manager
responsible for delegating duties and upper management's directives. The store manager reports to a regional
manager with connections to all the firms functional departments. The functional departments include information
services, legal matters, advertising and merchandise accounting along with many other core functional departments.
The functional departments are positioned on the organizational structure so that they are accessible by all of the
stores through their regional manager, and positioned below the geographic divisional presidents and upper senior
management. All of the operations departments share horizontal linkages facilitating data sharing through
implementation of satellite communication systems and advanced computer network systems. Senior Management
even has direct linkages to individual stores through their own television network, HDTV. This allows the senior
management to receive feedback from local managers and allowed current training and communications programs to
be viewed in individual stores.
One advantage of the multidivisional structure is the decentralization of decision making. This is widely used in the
corporate cultural of The Home Depot. For example, corporate headquarters set individual stores up so that they
were very similar, but individual managers could change a display or order more or less of a product if they could
justify the change. Local managers also have the authority to help out in the community. Bernard Marcus believes
that this constructs better positive relations with the stores surrounding community. Furthermore, a local store
manager is more attune to community needs compared to a corporate vice-president. The decentralization fits well
with the firm's rapid expansion corporate culture, because it places the decision making process closer to the new
stores that necessitate quick decisions tailored to their new geographic market environment.

International Parenting Operations

The placement of international operations on The Home Depot's organization chart reveals that the firm treats
international stores similar to those in the U. S. divisions. There are presidents for each geographic division in the U.
S., a president for the Canada division and presidents for the Expo and Crossroads divisions. All presidents have
direct linkages to each functional division.
Home depot created a Vice President for expansion into Mexico, and positioned the office on the same level as the
functional divisions. This is because The Home Depot plans a cautious and slow expansion into Mexico, where they
will pay special attention to Mexico's volatile economy and unskilled workforce. The Mexico division is not large
enough to warrant a divisional president, but The Home Depot anticipates future success in Mexico, leading to
expansion throughout Central and South America.
Leadership
The Home Depot employs a corporate culture that supports its strategy. The firm uses a cluster strategy to allow for
their rapid expansion. This strategy intentionally cannibalizes sales of existing stores in a single market area, but it
erects entrance barriers and spreads advertising and distribution costs over a greater store base, thereby passing
savings on to the consumer.
If a region is unable to digest the cluster theory, The Home Depot will modify their culture to make it compatible
with the new strategy. For example, The Home Depot acquired Aikenhead's Home Improvements Warehouse chain
in Canada, and formed a joint venture to insure a smooth transition of corporate cultures in Canada.
In conclusion we can say that The Home Depot's growth strategy is complimented by the corporate belief that an
individual can make a difference in the company. And an important value of the company is that everyone should be
comfortable reporting to everyone

Chapter 12: The corporate culture of Home Depot.

In this chapter we are going to explain the corporate culture of Home Depot. At first we will try to explain briefly
what a corporate culture is. Trying, because the definition of corporate cultures often differ. After that we will give
the corporate culture as we could find it in the case itself. After that we will apply some theory on the corporate
culture of Home Depot. After we will answer the questions dealing with the culture of home depot.

What is a corporate culture?

Before explaining what the importance of the corporate culture to a company is, first there must be a clear idea of
what a corporate culture is.
A definition we found on the internet is:

The moral, social, and behavioural norms of an organisation based on the beliefs, attitudes, and priorities of its
members.

Using the book Organisational Behaviour, by Robbins, we come to the following description of a corporate culture
to which we mean if we talk about a or the corporate culture:

A corporate culture refers to a system of shared meaning held by members that distinguishes the organisation from
other organisations. The system of sheared meanings, when looked closer, a set of key characteristics that the
organisation values.

Corporate culture of Home Depot, using the case.

"Guess what happened to me at Home Depot?". The bond of Home Depot with its customers is showed. Home
Depot calls its culture its: Orange- blooded culture. This orange-blooded culture is derived from the official colour
of Home Depot. The orange-blooded culture is emphasizing individuality, informality, nonconformity, growth and
pride. These items reflect those of the founders of the company who were, after being fired for just hours, starting up
Home Depot. A lot of employees of Home Depot are quite young. They feel comfortable with this kind of culture,
especially with the informality and nonconformity.

One of the directors of the company has the following statement:,, We know that one person can make the
difference''. This statement shows the importance of the individual to the success of the whole company. That one
person that can make the difference, it does not matter where he or she works. Working on the sales floor or a
managing position, all can make a difference. To attract employees Home Depot provides excellent wages and
benefits, superior training and advancement opportunities. Doing this Home Depot also encourages independent
thinking and initiative.

Informality is as mentioned before one of the main items of Home Depot's culture. During meetings, there is always
someone to make sure that it is not getting to formal -- > to make sure that the ties get properly trimmed. Another
example of informality is that when executives visit stores they go alone, they do not take a lot of assistants and so
on. A possible reason for the fact that there is a rather informal atmosphere, is that most of the executives worked on
the floor before working themselves up. In our opinion this is a really good thing. It can motivate personnel. They
can see/ work with/ listen to executives who worked on the floor themselves. This maybe has a better result of some
thing has to be done. It is in our opinion more likely that employees would rather listen to an executive who worked
on the floor him/herself than one that did not do so. Because of the informal atmosphere and the fact that most
executives worked on the floor before working up, these executives are in the eyes of the employee highly
approachable and they come often forward with suggestions and ideas.

In many areas of Home Depot, nonconformity is noticeable. Training employees at all levels is one of the best
means of transmitting a corporate culture. Home Depot used this method extensively. Home Depot trained, other
than most companies, carryout personnel as first. This because the person who helps the customer to the car is the
last person perceived by the customers. Home Depot wants to make this last perception as positive as possible.

Another item in the corporate value of Home Depot is the rather decentralised management. This is of course also a
part of the organisation of Home Depot, but we also like to see it as a part of the corporate culture. This item follows
a bit the one of informality. Because of among others this informality there can be a rather decentralised
management. People feel comfortable with this way of managing. Employees feel they can report to anyone.
Because everyone feels that they can report to everyone, the informal sphere is reinforced. And this is as described
before, one of the main items of the corporate culture of Home Depot.

Home Depot is built on values which encourage strong relationships with key customers. Management of Home
Depot embraced the values of taking care of your people, encouraging entrepreneurial spirit, teaching each other
with respect and being committed to the highest standards. The company is convinced that all employees posses
these values.
It is not just a case that everyone involved with the company has to know these values, the values have to be
believed and live!

For Home Depot, its culture is really important. The answer to the question how Home Depot could grow for so
long so fast and still be successful was that aggressive growth requires adapting to change but continued growth
requires to hold on to the culture and values of the company.

The culture of Home Depot is one that follows the strategy of the company. The strategy Home Depot is deploying
is a cluster strategy. This strategy means that Home Depot kind of like cannibalize sales of existing stores in a single
market area by putting another store in this area. This results in a higher entrance barrier for competitors and spreads
advertising and distribution costs over more stores.

This is all confirmed by the following statement of Merrill Lynch:

"Home Depot's entrepreneurial culture and heavy dedication toward customer service, Combined with its large
merchandise selection, has resulted in a retailer that leads its Industry by almost every performance measure".

Theory of Goffee and Jones applied on Home Depot's corporate culture.

There are many theories known to describe the corporate culture of a company. We would like to use research
performed by Goffee and Jones. This theory is chosen by us, because we have seen it before and are a little familiar
with it. Another reason why we chose to use this theory, is because the emphasis in these theory is on people
(employees). This is in our opinion a good reason to take this theory, because as mentioned before, Home Depot is
really focused on its personnel. Of course, a theory is not perfectly clear. Choices have to be made, sometimes a
company is in between some dimensions. Al the theories we are familiar with have this shortcoming, in our opinion
all theories have this. But so be it.

Goffee and Jones have identified 4 different cultural types. These four different cultures are all built on 2
dimensions. These two dimensions are: sociability and solidarity. According to the two researchers these two
dimensions underlie organisational cultures.

Sociability:

This dimension is a measure of friendliness. If this factor is high, it means that people do things for one other
without expecting something in return and relate to each other in a friendly, caring way. Sociability is consistent
with a high people orientation, high team orientation and focussing on processes rather than outcomes.

Solidarity:

Solidarity is a measure of task orientation. If the solidarity in a company is high, this means that people can overlook
person preferences/ tendencies etc. and go for the common interests and goals. Solidarity is consistent with high
attention to detail and high aggressiveness.

These two dimensions can be translated into 4 cultures. These are given in the matrix below.

Networked culture: (high on sociability and high on solidarity)

Organisations with a culture like this see members of the organisations as family and friends. The people in the
organisation know and like each other, they are willing to help each other and information is shared openly. A
negative aspect of this kind of culture is that the focus on friendship can lead to a tolerance for poor performances
and creation of political cliques.

Mercenary culture: (low on sociability and high on solidarity)

If a company has a culture like this, it means that it is fiercely goal focused. People are intense and they are
determined to reach the goals. They have this extra thing that makes them getting things done quickly and creates a
powerful sense of purpose. Mercenary cultures are not about wining, they are about to destroy the enemy. The tough
focus on goals and objectivity leads also to a minimal degree of politicking. The negative part of these kinds of
cultures, is that it can lead to almost inhumane treatment of people who are seen as low performers.

Fragmented culture: (low on sociability and low on solidarity)

Individualists make the organization with a culture like this. The commitment in a company like this is to individual
members and their job tasks. There is almost no identification with the organization. Employees are judged solely on
productivity and the quality of their performances. Negatives issues of these kinds of cultures are excessive
critiquing if others and an absence of collegiality.

Communal culture: (high on sociability and low on solidarity)

Friendship and performance are both valued in companies where a culture like this is found. People of the company
have a feeling of belonging to the company, but there is still a rather ruthless goal on achievement. The leaders of
these kinds of organisations tend to be inspirational, charismatic and have a clear vision on the future of the
organisation. Downside is that cultures like this often consume the total life of an employee. Charismatic leaders of
companies with a communal culture sometimes seem to look for disciples in stead of followers, resulting in a
working climate that looks a bit like a cult.

Home Depot is...

It is our opinion that Home Depot is a communal culture. We came to this conclusion because of the following
reasons. First of all, the case made it clear to use that personnel is really important to Home Depot. It is highly
valued that the employees perform according to the norms set, but also that they enjoy the work, working with
others and customers. To create this, Home Depot is willing to do a lot. Not only concerning work itself, but also the
relation between the employees. The informal atmosphere at Home Depot attributes to this. If personnel feel
comfortable, like the work, working with colleagues, friendship is rather quick established.
Another really important item for Home Depot is performance. The company grew for a long time, really fast. This
can not be done without striving for increasing performance (this can be in quality and quantity). Increasing, because
of staying ahead of competition, to show via the increasing performance that the company is willing to do its utmost
best for the customer. The fact that Home Depot was quite early with programs to increase for example productivity,
shows that Home Depot focuses on (the best) performance. As they mention themselves;
We want to be on of the most successful retailers in the world.
A lot of things are needed to achieve this, (increasing/ the best/ focusing on) performance is definitely one of those.

What is the importance of corporate culture to Home Depot?

In our opinion, this question could be rephrased as:

,,What is the importance of corporate culture to companies? ''

We think that the question could be rephrased like this, because it is our opinion that the corporate culture, together
with the norms and (core) values, form basics of the identity of the company. Almost everything the company does
can related to the identity of a company. The identity is divided in several layers. There is the overt level,
intermediate level and covert level. The order shows how visible the items in those levels are. Items in the overt
level are highly visible. Items in this level consist of behaviour, opinions and do's and don'ts. Items in the
intermediate level consist of priorities and opinions. These items are rather difficult to perceive. The last level, the
covert one, consist of the following items; ethics, norms and values. These items can not be seen. Concluding this
paragraph, we can say that in our opinion the corporate culture is really important for Home Depot, because the
corporate culture forms one of the basics of the identity of a company. Almost everything a company does, comes
from/ can be derived from the identity of a company.

Can the corporate culture be transferred to the new, smaller stores?

We can not see reasons why the corporate culture can not be transferred to the new, smaller stores. The information
available about theses smaller stores gave us the idea that the way of doing business in principle is the same as the
larger stores. Personnel and customers are still very important for example.
In a country there can be differences in the culture, especially in a large country as the US. These differences can be
overcome usually. The items in the covert level of a (company) culture are hard to transfer, but it is manageable. In
the new smaller stores new personnel will have to be hired. Before personnel is hired to work at Home Depot's, they
will have an interview and have to make some preemployment tests. It is in our opinion doable to try to make clear
to the possible new employee what the corporate culture is and what will be expected from this person. There are
also tests available which can show which kind of culture a person has. Of course, these tests and trying to make
sure that the possible new employee knows what will be expected and what the corporate culture is, can't tell 100%
accurately if the person will fit in with the corporate culture. What these items can do however, is to make it easier
to ''transfer'' the corporate culture. Not only people with the same or almost the same (corporate) cultures have to be
hired. This is quite hard and not necessary. (corporate) Cultures can be taught up to a certain limit. Up to a certain
limit because to covert level is almost impossible to transfer.

Can the corporate culture be transferred internationally?

This question is hard to answer. In the previous question, we had to do with the transfer of the culture in the same
country. Of course there can be differences in culture in a country, especially in a large country as the US, but these
differences are usually recoverable. The differences in culture between the US and other countries are substantial
and sometimes not recoverable. An example of a difference between US and most countries in Europe is that
Americans are more individualistic. Another example is that Americans are more do-ers than be-ers. Doing v. Being
is the question of do you live to work or do you work to live. The Americans are do-ers (so are most countries in
Europe, but way less than the Americans). In the States you really are important if you have professional success, lot
of properties and respectable positions. The fact that Home Depot takes excellent care for its personnel is an
example that will appeal to other countries.
Although that there are some similarities between the US (company) culture and the (company) culture of for
example Europe, the differences outweigh the similarities and that is why we assume that the corporate culture of
Home Depot can not (exactly) be transferred to other countries. Not exactly because in principle the first two levels
of a corporate culture can be transferred/ taught to other people/ countries etc, the covert level however can not be
taught/ transferred to other people/ countries etc.

Chapter 13: Strategic Managers

How important are the current strategic managers to the success of the company?

Introduction:

In this chapter we will try to explain to you how important the role of the strategic managers is, in the organisation
of Home Depot. In order to do this we will first explain how the management works and functions within the
organisation as a whole. Then, I will explain what the role of strategic managers is in order to answer the question
about the importance of strategic managers.
How the management works
The Home Depot Management is layered so there are both vertical and horizontal linkages among the firm's
management. The bottom of the structure consists of store department managers governed by one store manager
responsible for delegating duties and upper management's directives. The store manager reports to a regional
manager with connections to all the firms functional departments. The functional departments include information
services, legal matters, advertising and merchandise accounting along with many other core functional departments.
The functional departments are positioned on the organizational structure so that they are accessible by all of the
stores through their regional manager, and positioned below the geographic divisional presidents and upper senior
management. All of the operations departments share horizontal linkages facilitating data sharing through
implementation of satellite communication systems and advanced computer network systems. Senior Management
even has direct linkages to individual stores through their own television network, HDTV. This allows the senior
management to receive feedback from local managers and allowed current training and communications programs to
be viewed in individual stores. The CEO, Bernard Marcus, emphasizes a relaxed corporate culture, so that every
manager felt like they could report to anyone.
One advantage of the multidivisional structure is the decentralization of decision making. This is widely used in the
corporate cultural of The Home Depot. For example, corporate headquarters set individual stores up so that they
were very similar, but individual managers could change a display or order more or less of a product if they could
justify the change. Local managers also have the authority to help out in the community. Bernard Marcus believes
that this constructs better positive relations with the stores surrounding community. Furthermore, a local store
manager is more attune to community needs compared to a corporate vice-president. The decentralization fits well
with the firm's rapid expansion corporate culture, because it places the decision making process closer to the new
stores that necessitate quick decisions tailored to their new geographic market environment.

Executive Succession
The Home Depot typically promotes from within the company. Managers start in local store departments and move
up the ranks from there. The organizational structure is linear and breeds individuals that have knowledge learned
from the ground up. The Home Depot uses a "staffing follows strategy" approach and promotes managers that fit the
relaxed corporate culture environment. They also match managers to strategies. For example, Bell Pea was hired as
Vice-President of Mexico because he had extensive Mexican retail experience.
The Home Depot should be well prepared if Bernard Marcus, Arthur Blank and / or Ronald Brill left the firm. They
are the originators of The Home Depot, but over the firm's existence they have cultivated a firm with a clear
corporate strategy backed by a successful corporate culture. Currently, The Home Depot has long term goals and
objectives backed by a prominent executive succession and training program that could implement the goals if the
three senior executives left the firm.

The Importance of the Strategic Managers

Basically the strategic managers have 2 main functions:

1.To design business concepts and business processes that give the company direction, a concept and structure
which enables the company to distinguish itself and achieve success more easily
2.To be a Watchdog for the business processes to work smoothly, anticipate to changes in the environment of the
company and to solve operational problems related to the business process, or concept.

According to the Management of Home Depot, they like to concidder themselves as really not so important at all.
They seem to have the philosophy that the real work and the real success of the company depends on the people who
deal with the customers every day in the stores and not so much of what the Strategic managers in the Headquarters
come up with. Employee's at home Depot are encouraged and invited to come up with new practically applicable
ideas. And this approach has proven to be successful.
Eighty-five percent of the good ideas at Home Depot come from the Sales force, so it seems that management take a
position of moderators for ideas that come from the people who have to work with the concept every day. with.

So I guess it is fair to say that the importance of the Strategic managers at Home Depot is not so much to lead the
company in a certain direction but more to be a moderator or a referee if you will for other people's ideas and.

Also, Strategic managers at Home Depot also have the function of Decision makers in the case of big decisions. For
example they can decide where a new store will be built or whether an existing store can expand or not as well in the
case of an approaching acquisition or merger, strategic managers have important vote in the final decision.

Literature used.

http://recenter.tamu.edu/pdf/1268.pdf
http://www.cio.com/archive/050198/shop_content.html?printversion=yes

http://www.informationweek.com/701/01iucul2.htm

http://www.primesmoked.com/tim/writing/hdepot.html

http://www.auxillium.com/culture.shtml

http://www.ituedu.ca/emba/materials/strategic_management_and_busines.htm

http://www.multexinvestor.com

http://www.broadvision.com

http://www.google.com

http://www.homedepot.com

http://www.lowes.com

http://www.businessweek.com

http://www.financialtimes.com

http://www.actionpoint.com/services/support/hd.asp

http://technidigm.org/essays/jhu/tech/strategic.ppt

Case Study: Home Depot; The Home Depot Team

Case 24: The Home Depot, Inc: Growing the professional Market (Revised)

Essentials of Strategic Management, by J. David Hunger and Thomas L. Wheelen

Organisational Behaviour by Stephan P. Robbins 9th edition

Enclosure
December, 2002
Country State/Province City Store Name
US FL JACKSONVILLEN JACKSONVILLE
US FL MIAMIW KENDALL
US NY PAINTED POSTCORNING
US TX GAINESVILLEGAINESVILLE,TX
US TX CYPRESSSPRING CYPRESS
US NJ E WINDSORE WINDSOR
US NY OLEANOLEAN
US IL NILESWEST NILES
US IL MATTOONMATTOON
US TX ABILENEABILENE
US CA HANFORDHANFORD
US FL DAVIEDAVIE II
US FL PORT ST LUCIEWEST PORT ST LUCIE
Canada QC GREENFIELD PARKGREENFIELD PARK

January, 2003
Country State/Province City Store Name
US MA QUINCYQUINCY II
US KS MANHATTANMANHATTAN,KS
US NM LOS LUNASLOS LUNAS
US TX MARBLE FALLSMARBLE FALLS
US MI OWOSSOCALEDONIA TWSHP
US MT BOZEMANBOZEMAN
US FL MIAMIFLAGLER II
US PA MATAMORASMATAMORAS
US CO GOLDENEVERGREEN
US CO AURORAPIONEER HILLS
US OH FINDLAYFINDLAY
US IN GREENFIELDGREENFIELD
US PR BAYAMONREXVILLE
US NE GRAND ISLANDGRAND ISLAND
US VA ASHBURNASHBURN
US TX PEARLANDSILVERLAKE
US KS S OLATHES OLATHE
US NV LAS VEGASSW LAS VEGAS
US FL CLERMONTCLERMONT
US IA CEDAR RAPIDSCEDAR RAPIDS
US TX GALVESTONGALVESTON
US TX KERRVILLEKERRVILLE
US MI FARMINGTON HILLSFARMINGTON HILLS
US NJ ABSECONABSECON
US VA MANASSASEAST MANASSAS
US LA N LAFAYETTEN LAFAYETTE
US TX TERRELLTERRELL
US MA BROCKTONBROCKTON
US OH WESTERVILLEWESTERVILLE
US AL PELHAMPELHAM
US IL PEORIAPEORIA,IL
US PA TULLYTOWNTULLYTOWN
US TX FLOWER MOUNDFLOWER MOUND

February, 2003
Country State/Province City Store Name
US MI JACKSONJACKSON
US PA READINGEAST READING
US KY FRANKFORTFRANKFORT
US MN COTTAGE GROVECOTTAGE GROVE
US NJ HACKENSACKHACKENSACK
US IL OAKLAWNHD SUPPLY/OAKLAWN
US TX ARLINGTONHDLS-ARLINGTON
US WV CHARLESTONCHARLESTON,WV
US AZ PHOENIXEXPO-SCOTTSDALE
US CO AURORASADDLEROCK
US GA SNELLVILLEHDLS-SNELLVILLE
US CO DURANGODURANGO
Canada ON DOWNSVIEWGROCERY GATEWAY